As COVID-19 continues to close and re-close businesses across the country, e-commerce giant Amazon (AMZN) continues to outperform the competition. The company has captured large amounts of the new online spending from people who are limiting their in-person shopping. Today, however, Amazon’s largest competitor, Walmart (WMT), launched a new attack in the battle for online shopping dollars.
Walmart’s new subscription delivery service, Walmart+, is set to launch near the end of July. Walmart+, which will reportedly cost $98 per year and will include unlimited same-day delivery of groceries. Other perks may also be added, including discounts on prescriptions and gas, and in-store perks like the ability to check out without waiting in line.
Walmart's stock gained nearly 7% after the plans were reported, while Amazon lost almost 2%. Retail is not a zero-sum industry, so Walmart's gain doesn't necessarily mean Amazon needs to lose, but if Walmart+ becomes a huge success, it could cut into growth at Amazon.
Despite the launch of this rival to Amazon's Prime service having its release date pushed back by several months months due to COVID-19, investors are wondering if that delay won't work in Walmart's favor, giving it a better chance to grab, and maintain, a stronger presence in the e-commerce business.
This notion may seem counter-intuitive, especially when thinking about all of the new business that they missed by not having this option during the first round of closures. However, when examining the first half of this year we can see how blatant shortcomings may actually lead to more people choosing to order goods for delivery through Walmart.
Package Delays: Package delays were an entirely foreseeable issue when closures were just beginning, but this does not mean that the delayed and lost packages were any less frustrating for consumers, especially when it comes to the newest wave of “COVID” subscribers. Why? Because even though times are tough, a bad first impression is all it takes for subscribers to jump ship. Launching into the teeth of the pandemic could have meant thousands of frustrated online shoppers canceling their Walmart+ subscriptions and un-cancelling Prime during a couple of commercials.
Despite operations getting smoother as Amazon adapted to the crisis, this doesn’t guarantee sympathy or loyalty from Amazon Prime members, once again, especially with the COVID subscribers. This opens the door for Walmart to learn from Amazon’s handling of the crisis and ensure that their new subscribers don’t experience the same frustrations.
Trust and Reliability: Walmart is an established retail giant whose brand has earned the trust of consumers since the Kennedy administration. This means the new subscription service will be starting with a massive leg up compared to Amazon Prime with that company's humble beginnings as an online bookstore. This is important because there are a plethora of e-commerce hold-outs who may find a subscription that has a brick and mortar aspect to be the preferable choice. This sentiment could be compounded by the fact that signing up for a Walmart+ subscription could be as simple as the cashier asking for your email while checking you out.
Additionally, there are very few places in the United States that do not have a Walmart nearby. This means that Walmart may have an inherent advantage over Prime. Yes, Prime may always have more options for purchase as that is one of the clear advantages of an online platform. But Walmart will have inventory much closer to millions of Americans from day one. And what if subscribers decide that they prefer a more reliable experience? Walmart is known for their extensive quality control and downright brutal demands on their suppliers. This means Walmart+ subscribers will likely never have the same quality worries when ordering a product without having seen it in person first. Consider the smart phone market where, despite having fewer options for customization, and a much stricter policy about who can enter the app store, Apple's iPhone dominates as consumers seem to prefer the simpler choice from a brand they've learned to trust.
Age: When identifying who the COVID subscribers are demographically, it is more than fair to assume that they represent an older portion of the population. We can safely make this assumption because we know that younger generations take to new tech faster and are generally a lot more trusting of technology. This distrust of technology in certain age groups could, at the very least, allow Walmart to get a commanding hold of these consumers as many of them have known and trusted Walmart for a significant portion of their lives.
If Walmart can get a hold of this market, there really is no telling who will be leading the way a few years down the road. This may even end up as the deciding battle in the upcoming Walmart-Amazon war for subscribers. If Walmart+ were to win over this group, then they may be able to spend time profitably perfecting their product and boosting their reputation before aggressively going back after the younger consumers they may not reach the first time around. This doesn’t guarantee they will get the younger consumers the second time around, but it certainly won’t hurt their chances if they get good reviews.
All-in-all, Walmart+ will be entering this battle many leagues behind Prime, but that doesn’t mean investors should write the subscription service off, at least not for a while. The combination of consumers needing more online retail options because of COVID, new subscribers joining Prime during unreliable times and getting unsatisfactory results, and an overall lack of trust in online retail among older populations could give Walmart a much needed edge as it tries to create a product that can be a true rival to Amazon Prime.
